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Dollar falters as safe-haven bid dims on Brexit, trade deal optimism

NEW YORK (Reuters) - The dollar slid to two-week lows on Thursday, with safe-haven demand for the currency waning as investors grew optimistic about progress towards a U.S.-China trade deal and agreement on Britain’s exit from the European Union.

Sterling jumped to a two-week high versus the dollar and posted its largest daily percentage gain in seven months. The pound was last up 1.8% at $1.2432 GBP=.

“With a Brexit deal looking more likely and U.S.-China talks showing more progress, it’s just clear that the dollar is losing some safe-haven demand,” said Juan Perez, senior currency trader, at Tempus Inc in Washington.

On Thursday, Irish Prime Minister Leo Varadkar said a Brexit deal could be clinched by the end of October to allow the United Kingdom to leave the European Union in an orderly fashion, after what he called a very positive meeting with Boris Johnson. Ireland is at the center of what has been a prolonged Brexit impasse.

“Both prime ministers came out with the most hope in a while,” said Tempus’ Perez. “The move in the pound of more than 1-1/2 percent in its favor makes sense … but the key is can parliament pass this Brexit deal if it does happen.”

Aside from Brexit, investors were hopeful about a potential U.S.-China trade agreement.

Chinese Vice Premier Liu He on Thursday said China was willing to reach an agreement with the United States on matters both sides care about to prevent any further escalation in tensions, the state news agency Xinhua reported.

Liu, China’s top trade negotiator, made his comment in Washington when he met with U.S. officials. Trade talks between the two countries started on Thursday.

“If we get some type of trade deal or mini-agreement or mandate, you’re going to see that being supportive of European assets,” said Edward Moya, senior market analyst, at OANDA in New York. “We’re seeing the euro now back above $1.10, which has been the resistance.”

The markets largely shrugged off core U.S. inflation data that was lower than forecast.

In afternoon trading, the dollar index posted its biggest daily drop in five weeks. It fell 0.5% to 98.64 .DXY, after earlier sliding to a two-week trough.

The yen, another safe haven in times of geopolitical and financial stress, also fell to a one-week trough against the dollar, weakening as well against riskier currencies such as the Australian dollar.

The dollar was last up 0.4% against the Japanese yen at 107.87 yen JPY=.

The euro, meanwhile, rose to a two-week high, lasting changing hands at $1.1014, up 0.4%.

The dollar was little moved after data showed U.S. consumer prices were unchanged in September, while underlying inflation slipped. The report supported expectations the Federal Reserve will cut interest rates in October for the third time this year.

The U.S. consumer price index edged up 0.1% in August. Economists polled by Reuters had forecast the CPI nudging up 0.1% in September. Excluding the volatile food and energy components, the CPI climbed 0.1% after gaining 0.3% for three straight months.

Market bets for a quarter-point U.S. rate cut swelled to 85% at its next policy meeting in October, compared to 53% a month earlier.

Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski and Tom Brown

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